4 Union Pacific Nearshoring

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Apr 3, 2024

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What Is Nearshoring and How Does Transportation Support It? Union Pacific website, January 1, 2024 As companies establish production facilities in Mexico, freight shipping plays a critical role in moving products across the U.S./Mexico border. Learn about nearshoring and how strategic transportation choices are key to profitable nearshoring strategies. Supply Chain 101 https://www.up.com/customers/track-record/tr110723-what-is- nearshoring-shipping-to-from-mexico.htm Video: Prime Point Industrial Park near Dallas. http://www.primepointepark.com/index.html Video: What Causes Supply Chain Disruptions? https://www.up.com/customers/track- record/tr111621-what-is-causing-supply-chain-issues.htm In the 1990s, offshoring became a trend among U.S. companies. With more affordable labor available abroad (primarily in China), some entities relocated factories to lower production costs and increase profits. Offshoring relies on shipping those products back overseas for sale in the United States. For decades, this model was working. Then came the pandemic, and the resulting supply chain disruptions (especially for overseas shipments) began to poke holes in offshoring strategies. With products stuck overseas sometimes for months on end, the drawbacks of offshoring started to outweigh the benefits. Lessons learned from the last few years have prompted some companies to bring operations back to North
America, specifically to Mexico. Establishing production facilities closer to end markets minimizes the impacts of potential supply chain disruptions while keeping costs in check. This is the genesis of the nearshoring trend. What Is Nearshoring? Nearshoring is a business strategy that involves companies shifting their manufacturing and production operations closer to their main markets, allowing them to reduce transportation costs and deliver their products faster to customers. Specifically, over the past few years, some companies have begun shifting production from China to Mexico. The three main industries investing in Mexico are automotive, aerospace and appliances. The nearshoring trend has led to an unprecedented business boom in Mexico, with $42 billion worth of foreign investments in the country announced during the first six months of 2023, including a new electric vehicle plant and new steel complex. How Is the Transportation Industry Supporting Nearshoring? Part and parcel to the nearshoring trend is a greater demand for freight shipping across the U.S./Mexico border. As manufacturers establish new supply chains for products funneling into and out of new facilities in Mexico, they need affordable transportation solutions to have profitable nearshoring strategies. Their primary choices are shipping by trains, trucks, or both using a process called intermodal shipping . Each shipping mode has benefits and drawbacks but when shipping products to and from Mexico , intermodal shipping can offer expedited transit times while bypassing congestion at the border and offering consistent capacity. If reliability is important, intermodal shipping may be your first choice. When capacity is strained, truck prices tend to skyrocket, so cost can become an issue as well. Rail shipping and intermodal shipping tend to have a lower cost per ton mile compared to other sources of transportation, as well as available capacity, fewer delays at the border, and a carbon footprint that is 75% less than trucks. Overall, rail shipping and intermodal shipping offer a cost-effective, reliable and sustainable alternative to long- haul trucking. Using these shipping modes can help companies keep transportation costs from diminishing profits while also minimizing supply chain disruptions.
Two examples of best-in-class cross-border shipping services that deliver these benefits are Union Pacific Railroad’s Eagle Premium and Falcon Premium intermodal services.
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